Fixed mortgage rates have been on a steady ascent since bond yields blasted off in May. Now, the major banks are jacking up rates again.
Most of the Big 6 are lifting their “Special offer” 5-year fixed mortgages to 3.79% or 3.89%, a 20 basis point hike.
From that, typical well-qualified borrowers can expect at least 20 bps “discretion” (i.e., actual rates of 3.59% to 3.69%). If you know how to haggle, you might do even better.
Royal Bank also announced a 20 bps hike in its 5-year posted rate, which rises to 5.34% on Thursday. If a few more banks follow RBC’s lead, the benchmark qualifying rate will rise accordingly. That would mark the first increase in the benchmark rate in more than 500 days (since April 2012).
A higher benchmark rate makes it tougher to qualify for a variable, HELOC or 1- to 4-year fixed term. (Mind you, one 20 bps hike is not as impactful as dramatized headlines like this suggest.)
A 20 bps jump in the qualifying rate means a household at the edge of affordability would need ~$1,100 more income to get a variable-rate mortgage on a $300,000 house with 5% down.*
Looking back to May 1, 2013 is more telling. Since then, a 5-year fixed mortgage payment on that same $300,000 house has risen about $120 a month to ~$1,475. That kind of payment change is a potential source of financial “difficulty” for less than 1 in 10 mortgage holders—if past CAAMP surveys are a guide. Note that “difficulty” does not imply default.
Naturally, all these incremental rate hikes can add up and decelerate home sales. But based on past consumer surveys, it could take a good point and a half rate-bump to curtail buying decisions in meaningful ways. At the moment, we’re only halfway there.
* Note: The benchmark rate has little effect on someone choosing a fixed term of five years or more. That person’s ability to qualify is instead dependent on the actual rate they pay (a.k.a. the “contract rate”).
Rob McLister, CMT
Last modified: April 26, 2014
Is there a website that shows the discretionary rates at the banks?
Thank you!
Discretionary rates are just that – discretionary.
Best bet is to look at a mortgage broker’s website as they are usually advertising discretionary rates from their lenders. Your bank may or may not be competitive right now but it should give you an idea.
I find it intriguing how posted rates haven’t moved more. Maybe banks are keeping the benchmark rate low so more people qualify for variables.
Possibly, perhaps even likely. But, spreads had widened considerably after the financial/liquidity crisis, so likely just absorbing some of that additional spread over the past few months. Used to be that discretionary rates were 110-150 bps below posted, fairly consistently. Recently they were well above 200 bps, even reaching 250 bps (5.14 vs 2.64).
Sorry but can you put that in layman’s terms? Why does a wider “spread” between posted and discretionary rates mean that banks are not as inclined to raise posted rates?
I have 3 years left with a variable rate(prime minus 0.75%). Question: Do I keep riding this or do I lock in for 3 years? Thanks!
It’s the same site that shows all PIN codes for their client cards.
I would bet on keeping it.
Ideal guess is to look at a mortgage broker’s internet site because they’re usually marketing discretionary prices using their company loan companies.
me too
From what I understand, BoC is not planning to raise prime for a while, and the bad economic news support that. My impression is that this is just traders playing, and the new fad is that interest rates have to go up because the Fed Reserve is tapering its QE, even though the evidence suggest that interest rates actually drop when there is no QE http://www.zerohedge.com/news/2013-08-23/taper-risk-stocks-not-bonds
Good luck with that…
The problem for Lise is what will the fixed rate be when renewal of her mortgage is due in three years? will fixed rates be the same as now? I remember owning a house in 1986 paying 11.5%. If that was now a lot of people would be unable to afford their mortgages. I recently locked in at 3.69% for 10 years with two years left at 2.3% variable & though I realize everyone’s situation is different I think I made the right move.
Just to clarify my situation, note that I plan to retire in three years & locking in for ten was a no-brainer for me, cheers
Jim
Look into the penalty fees formulae and then you will understand why the banks are reluctant to raise posted rates….
Retiring with a mortgage … something’s wrong if that is the “new Normal” one day.
I’m buying a house and dealing with 2 banks currently,
1. one offers 2.6%, 25yrs, 5yrs closed variable rate, I have more Cash on hand but worry that may be less toward principle if prime rate increases.
2. one offers 3.19%, 25yrs, 5yrs closed fixed rate, I just need to pay fixed amount in 5 yrs but I’m short in Cash on hand and worry that cannot pay mortgage payment if I or my spouse lost our jobs.
What do you think about that? Can you give me some suggestions please? thanks all!
If you don’t have backup savings to get you through 4-5 months of no income, don’t buy a house.
If you press your luck and buy anyway, you’d be crazy to take the risk of a variable rate.